JPMorgan lowered its target for the S&P 500 and warned investors to be complacent about the risks of the Iran war, oil above $110, and the impact on growth, earnings, and stocks.
Summary
- JPMorgan cuts its year-end target for the S&P 500 from 7,500 to 7,200, as the markets profited. great danger betting on a quick decision in the Middle East.
- With Brent crude above $110 and closing near record levels, the bank warns that each 10% increase in oil could shave 15–20 bps off GDP and reduce S&P earnings by 2–5%.
- Strategists say a deep selloff could push the S&P 500 below its 200-day moving average to 6,000–6,200 as demand erosion and wealth effects bite.
JPMorgan was the latest – and most prominent – Wall Street institution to sound the alarm on Thursday, lowering its year-end price target for the S&P 500 from 7,500 to 7,200 and warning that equity markets are making “high-risk assumptions” by pricing in a quick resolution to the Middle East conflict. The downgrade, issued as Iranian strikes on Gulf energy infrastructure sent Brent crude above $110 a barrel, reflects a growing belief among institutional analysts that the economic fallout from the war was systematically undervalued.
“We believe the market is pricing in an immediate end to the Middle East conflict and the re-opening of the Straits, which offers a lower chance of demand,” JPMorgan wrote in its note. “This is a very risky assumption given that the S&P 500 and oil correlations tend to deteriorate after a 30% rise in oil.
Oil prices have risen more than 46% since the US and Israel launched their first strikes on Iran, yet the S&P 500 is down less than 4% – a difference JPMorgan strategists see as a sign of dangerous market complacency rather than real resilience. While high-risk sectors such as software stocks, South Korean equities, and crypto have sold off, the broader equity stance is unchanged, as investors are complicit rather than scoffing outright.
The central bank’s warning centers not only on inflation – a common issue in oil shocks – but on the destruction of demand. JPMorgan says that if supply disruptions continue, “GDP, demand, and incomes will decline with the destruction of demand.” The bank estimates that each sustained 10% increase in oil prices shaves 15 to 20 percentage points off GDP growth. If Brent holds near $110, consensus earnings estimates for the S&P 500 could fall 2 to 5%.
The picture of the provision of the building includes concerns. Oil output cuts have already risen to 8 million barrels a day – the highest on record – and JPMorgan has warned that cuts could reach 12 million barrels a day, equivalent to about 11% of global production.
JPMorgan Private Bank strategists Joe Seydl and Kriti Gupta put the oil transmission path in a strange way earlier this week: oil stored above $90 per barrel risks a 10-15% correction in the S&P 500, with international and emerging markets facing even greater losses due to their sensitivity to global growth. With oil at $120, the sell-off could be materially stronger.
The wealth effect adds a second channel. With US households holding more than $56 billion in stocks and mutual funds, the continued decline in equity will feed back into consumer spending – JPMorgan estimates that a 10% drop in the S&P 500 could reduce US consumer spending by about 1%. “The combined impact of continued oil prices and the bear market in the S&P 500 has a damaging effect on the system, greatly amplifying the negative impact on growth,” the bank concluded.
If the S&P 500 selloff reaches below the 200-day moving average near 6,600, the bank said meaningful support may not emerge until the 6,000–6,200 range. For now, as the war enters a dangerous new phase of energy infrastructure and with no diplomatic off-ramp in sight, JPMorgan’s revised policy may be more optimistic than cautious.
